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Tax Tips

The Deductibility of Business Meals Under The New Tax Law

A Notice from the IRS (Notice 2018-76) has been released that gives transitional guidance on the deductibility of certain business meals under Section 274, as amended by The Tax Cuts and Jobs Act.  The IRS intends to publish proposed regulations under Section 274.  Until these proposed regulations are issued, this Notice should be relied on regarding business meals.

The new Tax Law repealed the directly related entertainment expenses under Section 274 so they are no longer deductible.  Entertainment means any activity which constitutes entertainment, amusement, or recreation such as entertaining at a night club or a sporting event.

Under the Notice, taxpayers may deduct 50 percent of a business meal if:

1.   The expense is ordinary and necessary

2.   The expense is not lavish or extravagant

3.   The taxpayer or an employee are present

4.   The food and beverage are provided to a current or potential client or customer

Be careful when paying for business meals so they meet these guidelines.  Please call our office if you have questions!

 

 

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Rules for Paid Family and Medical Leave Credit

The IRS issued 34 questions and answers on new Code Section 45S.  This is a general business credit for employers who provide paid family and medical leave to their employees (Notice 2018-71). The credit equals a percentage of the wages an employer pays employees while they are on paid family or medical leave.

To claim the credit, an employer must have a written policy that satisfies the following requirements:

*  The policy must cover all employees

*  The policy must cover at least two weeks of annual paid family and medical leave for each full-time employee who has been employed at least one year and not paid more than $72,000.

*  The policy must provide for payment of at least 50% of the qualifying employee’s wages while on leave

Any leave paid by a state or local government or required by state or local laws is not taken into account for any purpose in determining the amount of paid family medical leave.

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Contributions to Arizona Public Schools and Qualfied Charitable Organizations

For the purpose of claiming Arizona’s tax credit for contributions made on certain feeds paid to a public school, the Arizona Department of Revenue now requires that taxpayers report the school’s County Code, Type Code and District Code & Site Numbers (CTDS) number on the Arizona income tax return for any contributions or fees made on Form 322.

The CTDS is a nine digit number that the Arizona Department of Education uses to identify Arizona public and charter schools.

Effective in 2018, the Arizona Department of Revenue has assigned a five digit code number to identify each Qualifying Charitable Organization and Qualifying Foster Care Charitable Organization for Arizona Tax Credits.

 

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Children Now Face ID Theft

Parents should be aware and check their child’s credit history.  A new federal law going into effect in September will make it easier for families to combat the growing problem of identity fraud of minors.  Parents can now make inquiries about credit files in their child’s name and freeze a file at no cost.

Data-security experts say children are increasingly targeted by thieves who steal social security numbers to create fake identities. They then apply for credit cards and take out loans using the stolen social security number.  Experian estimates that one in four children will be affected before they become an adult.  Criminals see the clean credit history of a child as very attractive because parents rarely check the credit history of the children. That can allow the theft to go on for years before being detected.

Young children do not have credit files unless parents open them or, someone committing fraud did. Once a child’s personal information is stolen, cleaning it up can be difficult.

Once the new law goes into effect in September, parents should contact the three main credit-reporting companies and check on the credit files of their children.  Parents should open credit files for the child and then freeze it.  The credit reporting system us built on the idea that the first person to claim an identity is that person.  Protect the credit of your children!

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Supreme Court Overturns Quill Decision! – What Does This Mean?

The Supreme Court today, in a 5-4 decision, came down on the side of the states and overturned the Quill Decision.  This grants states greater power to require out-of-state retailers to collect sales tax on sales to in-state residents.  This is a big deal for states.

At issue was the court 1992 Decision in Quill which established the physical presence for sales and use tax nexus.  That was before the surge of online sales and states have been trying to find constitutional ways to collect sales tax from remote sellers to residents in those states. The Quill Decision stated that those retailers had to have a “physical presence” or “nexus” in the state to be forced to collect and remit sales tax to a state. The Supreme Court said Quill was “out of date”.

States like South Dakota will now be allowed to require sellers that are selling substantial amounts of product into the state to collect and remit sales tax. This may be good for states.  However, the small “mom & pop” retailers would have to collect and remit sales to how many states? We may see litigation regarding these small online retailers about the amount of sales necessary to impose the collection obligation on them.  It may even be on a case by case basis….we shall see!

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Are You Trading in Cryptocurrency

The Internal Revenue Service issued a reminder Friday to taxpayers that they need to report any income from gains they get from virtual currency transactions on their tax returns.

The move comes after the IRS forced one of the largest cryptocurrency exchanges in the world, Coinbase, to send information on 13,000 of its users to the IRS last month after a legal battle involving the use of “John Doe” summonses.  That mean if you have engaged in transactions involving Bitcoin, Ethereum, and other digital currencies, you are expected to report those gains to the IRS.

The IRS pointed out that virtual currency transactions are taxable by law, similar to transactions involving other personal property.  The IRS issued guidance in 2014 in Notice 2014-21 spelling out the agency’s position on digital currency transactions for taxpayers and tax preparers.

The IRS warned Friday that taxpayers who do not properly report the income tax consequences of their cryptocurrency transactions fact the possibility of tax audits, and could even be liable for penalty and interest charges when appropriate.

Under Notice 2014-21, virtual currency is treated as property for federal tax purposes, so the general principles that apply to property transactions also apply to the 1,500 or so known varieties of cryptocurrency.  That means reporting payments made with virtual currency.

Payments made to independent contractors and other service providers are also taxable and self-employment tax rules apply. Have you been trading in cryptocurrency?

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How To Avoid Tax Traps with Inherited IRAs

An  inherited Individual Retirement Account (IRA) can be a tremendous boon to the beneficiary.  Who can’t use extra money in retirement!  Most inherited IRAs are cashed out within six months of the death of the family member.  If you do cash it out, there is no way for planning tax strategies! Without proper planning, federal and state taxes can take a sizable bite from the proceeds!

Options for Inherited IRAs:

  •  Take a lump sum distribution of the entire balance
  •   Roll the inherited IRA over into a new account and take the distributions over the longer of the life expectancy of the beneficiary or the decedent.

If the account owner died before reaching the date for RMDs (Required Minimum Distributions), the beneficiary has a third option of withdrawing all the funds by the end of the year containing the fifth anniversary of the decedent’s death (The Five Year Rule). In this case, the life expectancy of the beneficiary must be used.

Keep the Beneficiary Designation Up To Date!

Marriage, divorce and the birth of children can change estate plans.  The IRA will pass by beneficiary designation and not the Will.  Please make sure you keep the beneficiary as you want it.

Titling An Inherited IRA:

An inherited IRA must be titled with both the name of the decedent and the beneficiary plus the word “inherited”. For example, one might title an inherited IRA as “Jane Doe, deceased September 30, 2017, F/B/O Jimmy Doe, beneficiary”.  If you just change the name on the IRA, that is a “cash out” so DO NOT just retitle the inherited IRA to the beneficiary. Retitling the account is best done at the brokerage where the decedent held the IRA before the beneficiary rolls it over to his or her own brokerage.

If Decedent Had Turned 70 1/2 Years of Age and Started RMDs:

If the decedent had already turned age 70 1/2 and started taking required minimum distributions, the beneficiary MUST take the required minimum distribution before the end of that year or there is a 50% penalty and you still must take the distribution.

ROTH?

Consider the beneficiary’s age and if there are already ample retirement sources, converting the inherited IRA to a ROTH may be the way to go.

Please call our office BEFORE just cashing out the inherited IRA!

 

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